Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Bond Market Massacre!

Interest-Rates / US Bonds Jun 08, 2007 - 09:53 AM GMT

By: Money_and_Markets


Mike Larson, here. Two weeks ago, I issued an urgent bond market warning. I said that Treasury bond prices were falling and threatening a critical level of support. If we broke through it, I said, prices could really plunge and rates could take off like a rocket.

Well, guess what? We just sliced through that support like a hot knife through butter. Long bonds plunged by more than a point yesterday. While that may not sound like much, it was the biggest one-day percentage drop in more than 26 months!

You can see the action in this chart …

Bond Market Massacre!

The 30-year U.S. Treasury bond is now yielding a hefty 5.2%. And in the more closely followed 10-year Treasury market, yields have shot up to around 5.1%. That's the highest since last July.

Bottom line: Fears of inflation, fears of central bank diversification away from U.S. bonds, and fears of a re-accelerating global economy are all combining to drive bond prices lower and interest rates higher .

This is a major, major event in the interest rate markets — one you should absolutely take notice of. My prescription for what to do:

First, avoid interest-sensitive sectors of the stock market like housing and commercial REITs.

I've been harping on commercial REIT's underperformance lately, and my tune hasn't changed. These overvalued, overloved, overowned stocks are still yielding peanuts. Avoid these guys … or better yet, sell if you're loaded up in the sector.

Second, keep your fixed-income money in short-term investments — 3-month or 6-month Treasury bills or something like a Treasury only money fund.

There's simply no reason to go out on a limb with longer-term bonds at the moment. As I just showed you, prices are likely to keep going down. At some point, it will make sense to test the waters. But we're not there yet.

Third, consider pocketing some gains on your high flyers.

Money has been flowing into all corners of the market. And that has helped boost all kinds of asset prices. But higher interest rates could force buyers to become sellers. It's wise to take some money off the table before that happens.

Another threat: Higher rates could put the kibosh on the private equity buyout mania by making deals more expensive to finance. That would further threaten groups like REITs, which have seen a merger and acquisition frenzy.

Fourth, if you haven't checked out the great work my friend and colleague Nilus Mattive is doing in the dividend stock arena, I encourage you to read his latest report . His specialty is ferreting out the kind of high-yielding investments that can survive and thrive in a rising rate scenario, and hand you a heck of a lot better return than what Treasury bonds are offering even now!

Now, I want to talk about something else that's important to me …

Our Contribution to The Housing Debate

There's a movement afoot in Washington. It's winding its way through Congress … the Federal Reserve … major banking regulatory agencies … consumer groups … and trade organizations. Simply put, they're all trying to figure out what to do about the housing and mortgage mess.

The reason is simple: We're in the midst of the most severe housing market downturn in decades, one that shows little sign of stopping.

Some telling figures:

  • Existing home sales are off about 17% from the September 2005 peak. The seasonally adjusted annual rate of sales, at 5.99 million in April, was the lowest since June 2003.
  • In the new home market, sales have plunged 29.4% from the July 2005 peak. March sales were the lowest since June 2000, forcing home builders to slash prices to drive traffic .
  • Most importantly, for-sale inventories have skyrocketed. As of April, there were a stunning 4.2 million existing homes on the market of all property types. That's the highest level ever, and it leaves us with at least 1.7 million "excess" homes for sale, by my reckoning.

You can see why Washington is wrestling with some pretty big questions right now: How did it come to this? How did the housing market explode to such dizzying heights? Why is it falling so sharply now? What can we do to ease the burden on overstretched borrowers? What mortgage practices should be banned? What can we do to avoid meltdowns like this in the future?

For weeks now, I've been grappling with those same questions. You see, I'm working on a special report that we plan to release to the public. It won't be your typical investment bulletin, but rather our company's contribution to the public discourse — an attempt to give policymakers and other interested parties an unvarnished roadmap of the boom and bust … and the best way out.

In a nutshell, here's my take …

Rudyard Kipling once wrote: "If you can keep your head when all about you are losing theirs and blaming it on you … Yours is the Earth and everything that's in it, And — which is more — you'll be a Man, my son!"

Unfortunately, between 2002 and 2006, few in the housing finance food chain took Kipling's advice. Home buyers, lenders, and policy makers lost their collective minds, and their poor choices helped to inflate the largest housing bubble of all time.

The list of contributing forces is long, indeed — overstimulative monetary policy, reckless mortgage lending, a dramatic influx of money into the mortgage bond market, speculative activity on the part of borrowers and real estate investors, and lax regulatory oversight.

To make up for these past mistakes, and prevent them from being made again, we're going to need:

  • The right combination of tougher regulation and industry oversight
  • Loan modifications
  • Fresh thinking at the Federal Reserve Board

And even these measures won't keep the housing market from suffering a long period of weakness — they'll just help make things a bit less painful.

I'm going to put the finishing touches on my report right now, so I'll have more to share with you on this topic soon.

Until next time,

By Mike Larson

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules